Signs of a restart for Saudi Arabia's East-West pipeline, combined with diplomatic overtures from the Iranian president ahead of the UN General Assembly, are together easing the geopolitical risk premium that had spiked due to earlier supply disruptions in the Middle East.
On Tuesday, Bloomberg cited informed sources reporting that Saudi Arabia is in the early stages of resuming operations on its East-West pipeline, with the goal of restoring crude exports via the Yanbu port later this week. Following the news, Brent crude extended its decline on Tuesday, falling below the $100-per-barrel threshold. In a separate development, as reported by CCTV International News, Iranian President Masoud Pezeshkian departed Tehran for New York on September 22 to attend the high-level week of the 81st UN General Assembly. He is expected to address the general debate on the morning of September 23 local time, which corresponds to tomorrow evening Beijing time.
The convergence of these two developments marks a turning point in market sentiment. However, analysts caution that the timeline for pipeline restoration remains uncertain, and whether US-Iran negotiations can achieve substantive progress is still up in the air. Whether the geopolitical risk premium will continue to fade remains to be seen.
The Pipeline Restart: A Key Bypass from the Strait of Hormuz to the Red Sea
The East-West pipeline is Saudi Arabia's critical infrastructure for transporting crude oil to the Yanbu port on the Red Sea, bypassing the Strait of Hormuz. On September 10, the pipeline was struck by a drone attack originating from Iraq, and the damaged pumping station forced Saudi Aramco to shift its export operations back toward the Persian Gulf direction, with a large number of tankers recently loading at the Ras Tanura terminal.
According to Bloomberg, Saudi Aramco has since been working against the clock to bypass the damaged pumping station and partially restore pipeline flow, aiming to return the pipeline to full capacity within roughly six weeks. Multiple oil traders noted that signs of tanker arrivals at the Yanbu port have emerged, an early indication that the pipeline restart is imminent. Saudi Aramco and the Saudi Energy Ministry have not responded to requests for comment.
The impact of the pipeline shutdown has been fully reflected in the market. According to informed sources, Saudi Aramco has notified at least two European refiners that it will be unable to fulfill its crude allocations under October term contracts. Polish state-owned refiner Orlen SA has since scoured the market for alternative supplies, driving European oil prices sharply higher, with the Dated Brent physical benchmark briefly surpassing $130 per barrel.
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The combination of the pipeline restart and diplomatic easing expectations has simultaneously weighed on oil prices from both the supply side and the risk-expectation dimension. Brent crude dropping below $100 reflects the market's rapid pricing of a narrowing short-term supply gap.
However, the risks have not dissipated. Yemen's Houthi militants continue to launch attacks on Saudi infrastructure, and the Red Sea shipping route where the Yanbu port is located still faces security threats. The actual pace of the pipeline's recovery will depend on the progress Saudi Aramco makes in repairing the damaged pumping station, a process fraught with considerable uncertainty.
Analysts point out that if the pipeline recovery falls short of expectations, or if US-Iran negotiations fail to achieve substantial breakthroughs during the UN General Assembly, the geopolitical risk premium could easily return. The current decline in oil prices reflects improved expectations rather than a fundamental shift in supply dynamics, and investors should remain vigilant against potential reversals in the situation.
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